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Judgment on public procurement puts parallel importers at a disadvantage

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In a 29 June 2018 decision, the Stockholm Administrative Court ruled that the obligation on tenderers of public procurements of medicinal products to have routines which ensure that the use and handling of active ingredients would have as little effect on the environment as possible, as well as the obligation that they routinely survey and have dialogue with their subcontractors, were permissible.

Facts

Within a public procurement of medicinal products for in-patient use, the Stockholm County Council required the tenderers to have certain routines in place to ensure that the use and handling of active ingredients and other raw materials and chemicals would entail as little effect on the environment as possible. Further, the county council required the tenderers to routinely survey and have dialogue with their subcontractors (so-called 'corporate social responsibility'). The county council stated that these requirements were imposed in order to achieve the overall aim of handing over a society to future generations in which major environmental issues are resolved, without increasing environmental and health issues abroad.

Due to the requirements, a parallel importer challenged the public procurement and argued that it should be withdrawn. The parallel importer claimed that the requirements were incompatible with EU law because they contradicted the principle of the free movement of goods and thus the prohibition on quantitative import restrictions. Further, it is claimed that the requirements were incompatible with the principles of proportionality, competition and equal treatment under the Public Procurement Act (2016:1145).

Essentially, the parallel importer's argument held that the requirements were impossible to fulfil for parallel importers because they usually lack access to details regarding subcontractors and information on previous steps of the supply chain regarding medicinal products.

Decision

The Stockholm Administrative Court first assessed whether the requirements were incompatible with the principle of the free movement of goods. The court held that exceptions can be justified on the grounds of (for example) protecting the health and life of humans, animals and plants.

Accordingly, the court stated that environmental and social requirements are permitted where they are:

connected to the contract;

objective;

verifiable;

subject to equal treatment; and

non-discriminatory.

The court found that the requirements in this case fulfilled these criteria. In particular, the court held that the fact that not all tenderers are in a position that guarantees a means of complying with certain requirements does not automatically imply that such requirements are incompatible with the principle of the free movement of goods. Consequently, the court found that the requirements were not incompatible with this principle.

Regarding the principle of proportionality, the court stated that in order to be proportional, measures must:

be adequate, effective and necessary (eg, no less interfering measures are available); and

have no disproportionate or excessive effects compared to their purpose.

The court deemed the requirements in this case to be adequate and effective. Not only had the county council been entitled to make such requirements, the Public Procurement Act had also required it to do so.

The court also observed that transparency in the pharmaceutical industry was generally low, with no information available regarding the locations and procedures of medicinal product manufacturing. Under stricter requirements – such as those in question – the court held that traceability and transparency would be beneficial and that the aim of promoting sustainable medicinal products, both from an environmental and social perspective, could be fulfilled. Therefore, by setting the same requirements regardless of tenderer, the court deemed the requirements necessary and found that no less interfering measure had been available.

The court further stated that the requirements' potential effects (ie, that some tenderers might withdraw from participating in the procurement) were neither disproportionate nor excessive compared to their purpose. Therefore, the requirements were deemed compatible with the principle of proportionality.

The court also assessed whether the requirements were incompatible with the principles of equal treatment and competition. The court observed that these principles do not oblige the procuring authorities to compensate for latent and natural obstacles to competition which normally befall certain distributors. Therefore, while it might have been more difficult for parallel importers to comply with the requirements than original manufacturers, the court held that the requirements were compatible with the principles of equal treatment and competition.

Therefore, the county council's requirements were deemed permissible.

Comment

The Stockholm Administrative Court's decision has been appealed to the Administrative Court of Appeal in Stockholm, which has yet to make a decision. If the judgment is upheld in the second instance, originators of medicinal products will have an advantage over parallel importers in public procurements in Sweden because the former can more easily submit details regarding the supply chain and their subcontractors. Parallel importers must instead rely on the originator's willingness to provide such information.

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